So, you’ve been cracking your head about the financial pros and cons of buying or renting a property.
Your parents may have convinced you to settle down in a home that you call your own, but your friends have been going on about the perks of living in a rented property.
The good news is, there’s no right or wrong answer. Buying or renting can be subjective, depending on your circumstances and personal preferences.
Here are some important factors you should consider, before you sign on the dotted line.
1) What’s your financial position?
Whichever option it is that you’re currently considering, both of them require a substantial financial commitment.
If you don’t do the necessary calculations and planning beforehand, you could quickly end up with a too much debt.
First, ask yourself these basic questions below to get a rough idea:
- If you intend to rent, does the rental cost take up more than half of your monthly salary?
- Now, if you intend to buy a property, can you afford the 10% down payment?
- Are you eligible for any government housing schemes?
2) What’s the price-to-rent ratio?
Many people have claimed that renters are on the losing end in the property market. They pay rental fees for years, only to enrich their landlords and not own any property of their own in the end.
However, not all home purchases are a good deal. To know if buying or renting a house is an economically wise choice, you can calculate the price-to-rent ratio of a property.
Here’s how it’s calculated:
Price-to-rent ratio = Average cost of listed property / Annual property rental sum
PropertyGuru Tip
The price-to-rent ratio indicates the number of years your rental fees will take to cover the cost price of a property.
As a simple example, the average cost of buying a house in Malaysia is RM300,000. The property you’re eyeing has a monthly rent of RM1,800, which would translate to an annual rental cost of RM21,600.
Thus, the calculation would be = 300,000 / 21,600 = 13.88
The price-to-rent ratio for this particular piece of property indicates that it would take you almost 14 years of rental fees to match the cost price of the property.
In other words, if you intend on staying for more than 14 years, buying that property might be a better deal than renting it.
3) What’s the duration of your intended stay?
Are you looking for a temporary accommodation? Or are you looking for a property to settle in for the rest of your life?
It might not be worth your hard-earned money to buy a property if you plan to live in it for only a short period of time.
Apart from high upfront costs such as the down payment and various legal fees, there are also recurring fees you’ll need to fork out when you buy a piece of property.
This could include property tax and home maintenance costs. All of these expenses might not be worth it if you’re only looking at shorter-term accommodation.
4) What are your needs and preferences?
Knowing your lifestyle needs and preferences helps too. While these may seem insignificant initially, they DO play an important part in your decision-making.
For example, you may need a place near to good schools for your future kids. Or perhaps you’d prefer to live in a happening hotspot that’s connected to various public transportation.
Furthermore, unlike renting a property, buying one gives you full ownership of it (do whatever, whenever)! If you’re only renting, you might be restricted by a lot of do’s and don’ts.
If you’re someone who’s pretty particular about home design with dreams of creating the perfect abode, then buying your own property may be a better idea.
Weighing the pros and cons of buying and renting a property in Malaysia
If you still have difficulties coming to a decision, worry not! We’ve weighed the pros and cons out for you in handy little tables:
Renting
|
Pros
|
Cons
|
|
No high upfront costs such as the down payment.
|
The possibility of encountering a bad landlord.
|
|
No recurring fees such as property tax and maintenance fees.
|
A sudden increase in rental fees which may cause you to have to move out.
|
Buying
|
Pros
|
Cons
|
|
Serves as a form of investment.
|
High upfront costs and recurring fees.
|
|
Complete ownership over a property.
|
Financially tied-down for decades.
|
Choosing between buying or renting isn’t easy. However, here’s one last tip for you: According to David Bach, a self-made millionaire, buying a property is considered ‘an escalator to wealth’.
If you think you have the financial means and are looking for a long-term investment, buying your own house may be the right choice for you.